Ben Perreira

My head's dropbox.

Month: January, 2013

Lawler’s Law

Lawler’s Law states that the NBA team that reaches 100 points first will win the game. It is based on Lawler’s observations and confirmed by looking back at NBA statistics that show it is true over 90% of the time.

Its brilliance lies in its uselessness. Like NyQuil helps us sleep but does little to help our immune systems make us well, Lawler’s Law soothes us by making us think it means something more than it does.

Why is it so useless, one may venture to ask?

Lawler2

This is a graphical representation of Lawler’s Law. Point A represents the beginning of a game. This team (which ultimately wins this game) has roughly a 50% chance of winning at that point. As the game goes on, and more points are scored, the team depicted here increases its chance of victory based on the number of points it has scored. Point B represents 100 points scored and the 90%+ chance of winning.

The missing dimension on this graph (and in the dialogue surrounding Lawler’s Law) is game time. Only the top 10 teams in the NBA have averaged more than 100 points per game this season. An NBA team has only a 33% chance of scoring 100 points in a game, so of course the team that reaches 100 points first will win the vast majority of the time.

There is nothing special about 100 points except that since few teams score that many points in a given game and that it’s the lowest triple digit number. It is a nice, round benchmark for what we already know – the first team that scores more than the average number of points in an NBA game (or anything, ever) will most likely win that game.

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Asset Leverage: An Addendum

Yesterday I wrote about people being more powerful than ideas. 

They really are – if you use them.

Companies usually good at figuring out how to get more out of various assets – raw materials, buildings, equipment, and the like. However, many organizations, including this guy’s, do a very poor job of managing their most valuable asset, their people. 

Imagine moving into a new house and trying to figure out where to put your TV, desktop computer, and appliances. Each of those things could have a variety of secondary devices (modem, DVD player, etc.) that plug in to make them more dynamic. You have now figured out where each one goes and you have to plug them all in. You want to be able to control them individually from one central place, but you want them all to do their respective tasks well. In your mind they all work perfectly exactly when you want to use them.

Organizations that fail to use their human assets are like you at your new house with a Roku sitting on the floor, unplugged. It takes some effort to get everything working right, but it’s worth it.

Ideas and People

Don’t take it from me. Ideas aren’t worth much.

An idea by itself is a fantasy. It gains value when we add defensibility through uniqueness in the eyes of consumers, otherwise it will be copied and likely executed better. It gains more value when it has a commercially viable business model.

This is facilitated by the people making it happen. Investors look at two things when deciding if they want to exchange their money for your equity: financials and the team involved. They know that a good team has the ability to connect the dots of people, products and culture. Knowing how financials can change so easily, the team makes the biggest impact.

The people they look for can find a place to embed their product that is fertile, which is a blend between the market being ready for something new and the market not being saturated. Not the easiest place to find.

If you did a study on the success of startups, you would surely find that the successful ones are concentrated among an oligarchy of people who make things happen (If someone has done this study I’d love to see it). Startup ideas are plenty. Capable teams are hard to come by.

People > Ideas

Lazy

I have a confession to make: I am lazy.

I like to find shortcuts and follow them, whether that is when I am commuting, saving passwords on frequently used websites, or in processes for projects I’m working on. 

The thing is, finding shortcuts takes its own kind of work. It requires taking in a ton of information then making a decision about which way is the right way for me. Following that decision becomes very easy after that, almost automatic.

In the same way I program my brain to follow patterns to save “brainpower” for other means, brands do this for us. 

Kleenex is a great example of this. How much more effective is it to say “Kleenex” than “facial tissue?”

How about the combination of Jack Daniel’s and Coca-Cola? A Jack and Coke is just an easy way to say you want a cola and mediocre bourbon. The bartender knows what you mean even if the bar carries neither brand. 

Beyond Master Brand names, the most effective brands stand for something that is apparent through a tagline (“The Ultimate Driving Machine”) or reputation (Toyota).

They know that we are all lazy and do not want re-evaluate entire industries every time we make a purchase. They offer a shortcut so they are the first thing you think of when you think of that category. They make our purchases automatic reactions to commercial junctions in the same way I automatically turn right at the fork in the road near my parents’ house. Too easy. 

The Evolution of the MBA

Before you accuse me, take a look at yourself. – Eric Clapton

When I decided to get my MBA three years ago I didn’t know as much as I could have about what opportunities were out there and which doors were closing. I knew that a lot of successful people around me had MBAs and that a lot of jobs I wanted listed “MBA preferred” or “MBA required” high on the list of qualifications. If I were to do it again I would wait until I had been working for at least 5 years to have better perspective, but at the time it was sort of a no-brainer.

Follow enough business news sites and you will find a constant stream of op-ed pieces on the eroding value of the MBA degree.

The argument goes like this: Years ago you could get an MBA and become a member of an exclusive club, thus availing you to high paying jobs. In the last ten years there has been an increase in the supply of those with MBA degrees (due to online programs, people being out of work and going back to school, smaller schools offering the degree, etc.). Today, the degree does not deliver the ROI that it did in the past.

(You can read examples of the argument in long form here and here.)

All of this is true, and it makes sense when examined with a narrow lens. The fallacy in this argument is in assuming people have one goal when they get an MBA – to make the most money possible. They will use the degree to propel them into investment banks, consulting firms or management training at CPG brands.

Of course, the vast majority of people who enroll in MBA programs want to make more money than they are now making, but the motivation is often also to change careers, to accelerate their careers, to gain credibility, and to seek out challenges.

Vacations, sporting events, going to the gym and buying cars all have very poor ROIs. We “invest” in these things with the expected dividend of later enjoyment.

Add to the problem of an increase of the supply of MBAs the decrease in demand. Which is to say, a dissatisfaction with the way old school MBAs looked at the world. Anything that could be quantified would be counted and added to the master Excel sheet. Anything that gave a little when poked was assumed to be unimportant. There is a reason why the “Add $500k in valuation for every engineer, subtract $100k in valuation for every MBA” maxim exists in the startup world. Why hire someone who has been trained to be an egotistical machine?

My colleagues and other new MBAs I’ve met look at the world as a complex place that requires flexibility. They are prepared to roll up their sleeves at startups, join nonprofits, or lead HR teams. They know that there is a fertile territory beyond ratio analysis. They know that if Michael Porter can fail, so can they. They know that increases in income have diminishing marginal returns, that the difference between $50k and $150k is much greater than the difference between $400k and $500k. They want to do interesting work and realize that the money will come when they have proven themselves. They know that the future is hard to predict so they don’t bother worrying about the NPV of their MBA. They know they will pay it off eventually, so they get back to focusing on making things happen.

It is not surprising that old school MBAs would misfire on valuing the degree in changing times. Change was not part of the model. Luckily, we’re learning from their mistakes.

The One (That Doesn’t Exist)

We can thank Hollywood for making us think Prince Charming or Princess Whatever-the-hell-the-equivalent-is exists somewhere out there.

It sounds fun and beautiful and romantic when we are young, but it becomes clear that it is more destructive when we get older. I see it in my friends, women I’ve dated, and myself.

One female friend in her late 20’s is looking for a guy who is tall, handsome, makes enough money to buy her a Range Rover, and social enough to go out but loves to stay at home to cuddle with her while watching cheesy movies and smoking weed. This guy does not exist. 

I remember talking to a family friend a few years back who had recently lost his wife. When they met, he was in dental school and wasn’t making money. (The implication seemed to be that he could have done better, somehow, if he had waited a few years). She had a good job and she was beautiful. Most importantly, he pointed out, they were both in the mindset that they were ready to settle down. He knew it was time.

Businesspeople make this mistake too. I worked with a brand that was launching a digital product in an unproven category. The idea itself was good, but the projections were out of control. When I ran the numbers the projected net profit margin was 90%! (For non-accounting types, 10% net margin is pretty good.) I would have better luck finding my friend her dream guy.

The best of us buy low and sell high. They hone their craft until they know how to identify the right time to act. At that point, The One isn’t the one because of some cosmic connection, it is just the right one.

Eschew Obfuscation

I saw the phrase “eschew obfuscation” on a license place frame in Los Angeles a few months ago.

I love it.

We spend so much of our lives trying to find more complex ways to analyze and measure things (see Big Data) when we could justifiably be doing to exact opposite.

The message from the friendly motorist in front of me reminds me to “avoid bullshitting.”